Making Cents in Penny Stocks

The occasional shower of pennies from heaven might do our bank accounts some good, but we Fools can't say the same for penny stocks.

The world of penny stocks is often full of manipulation and deceit, making it harder for investors to separate its few good offerings from the multitude best ignored. Even though some investors think low-priced stocks have a better chance to appreciate, those stocks may be cheap for a very good reason. Indeed, a $20 stock might have better chances of gaining value than a $0.20 one.

Still, many investors dabble at the low end of the stock-price spectrum. At Motley Fool CAPS, we award the "Pennies" title to investors who rate stocks trading in the single digits more than half the time. Believe it or not, you'll find some of the best CAPS All-Stars among those players.

Pinching pennies
This week, we'll look at some of the low-priced investments these All-Stars have praised. If the best investors regularly scanning this end of the market have singled out these companies, we might want to turn our umbrellas upside-down -- or run for cover!

Here's the latest list of low-priced stocks with All-Star support:

Company

Price+

CAPS Rating

Player

Player Rating

EarthLink (NASDAQ:ELNK)

$7.56

*

dinasourneil

99.97

Alvarion (NASDAQ:ALVR)

$6.16

*****

tuffsledding

99.94

Western Goldfields (AMEX:WGW)

$3.18

****

ltmm

99.82

Ceragon Networks (NASDAQ:CRNT)

$9.85

*****

baylesparty1

99.67

R.H. Donnelley (NYSE:RHD)

$5.87

**

TheDeadCatBounce

99.56

+Price when the outperform call was made.

As we delve into the low-priced "pennies," we find that most of the companies are a generally well-liked bunch by the CAPS community, as most are rated four stars or better.

Small stuff, big growth
Like Pizarro's expedition for El Dorado, the mythic "city of gold," maintaining a continuous Internet connection as one travels from place to place has been an equally quixotic quest.

WiFi was the first stage in getting a broadened area of coverage; WiMAX has been promised as the next step in the journey that could bring us to its door. It is a set of standards for sending data at broadband speeds over long distances, which, with a network of line-of-sight microwave towers that repeat signals, could finally bring about true connectivity for the last mile.

At least that's the hope. One of the leaders in the quest is Alvarion, with more than 200 commercial WiMAX deployments worldwide. Yet with the U.S. being the place where WiMAX ought to be making the biggest impact, industry players like Sprint Nextel (NYSE: S  ) have delayed their launches. That's giving the fourth-generation technology long-term evolution (LTE) backed by Verizon (NYSE: VZ  ) and other carriers a chance to gain a foothold.

While the delays may have helped set back Alvarion's stock, along with a mired economy and a weak dollar (the WiMAX company is Israeli and has been beset by a strong shekel), its ability to get deals done in other countries has investors like CAPS player stockgaucho seeing the possibility of a triple in value in just three years, as he noted in January.

This may be a 3X3 bagger. Triple your money in three years. They just got a deal with Monaco Telecom. ... A safe bet is ALVR because they are a bunch of brilliant Israelis leading the game working with CISCO in Monaco, an ultra-rich independent nation in Southern France right next to the Italian border. ... When companies like eBay are releasing weak 2008 guidance when they have been dominating for so long, you wonder what the real picture in the market is. I think ALVR is going to lead the industry.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a coin in the street? Consult our free Motley Fool CAPS investor intelligence community, where your two cents count as much as anyone else's.


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